APURVA NATVAR PARIKH & CO. PVT LTD,MUMBAI vs. THE PRINCIPLE COMMISSIONER OF INCOME TAX, MUMBAI-6, MUMBAI

आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal filed by the assessee emanates from the Revision order u/s 263 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 12.03.2024 passed by the Principal Commissioner of Income-tax, (Central),Mumbai - 6 [hereinafter referred to ‘PCIT’] pertaining to assessment order passed u/s. 143(3)of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 07.04.2021 for the Assessment Year [A.Y.] 2018-19.

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited 2. The grounds of the appeal are as under:-

2. The appellant submits that jurisdiction under section 263 of the Act could be assumed only where order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue. Where the appellant’s case is directly covered by the jurisdictional High Court in the case of Diners Business Services Pvt. Ltd. [263 ITR 1 (Bom)] (which was accepted in the originally completed assessments for assessment years 2003-04, 2004-05 and 2005-06), order passed by the Assessing Officer in conformity with the said High Court order cannot be said to be erroneous and accordingly, not amenable to revision under section 263 of the Act.

3. The Ld. Principal Commissioner of Income-tax erred in holding that the Assessing Officer had passed the assessment order under section 143(3) rws 143(3A) & 143(3B) of the Act without application of mind to the issue of treating one time membership entrance fees as capital receipt and thus is erroneous, just because the issue was not detailed elaborately in the said assessment order. The appellant submits that the Assessing Officer passed his order after making due inquiry and merely because detailed discussion has not been made in his order, the same cannot be termed as erroneous.

4. The appellant submits that the Ld. Principal Commissioner of Income- tax erred in passing an order under section 263 of the Act for setting aside the order of the Assessing Officer so that he may carry out requisite inquiries. The appellant submits that this could amount to change of opinion which is not permitted under section 263 of the Act.

5. The Ld. Principal of Commissioner of Income-tax erred in treating the one time membership entrance fees as not being capital receipt despite decision of the jurisdictional high court in the case of Diners Business Services Private Limited [263 ITR 1(Bom)] wherein it is categorically held that such a receipt is in the nature of capital receipt and, therefore, not taxable.

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited 6. The Ld. Principal of Commissioner of Income Tax erred in confirming that there is under assessment of income on account of failure on the part of the appellant in considering the disallowance u/s 14A rwr 8D to the extent of Rs 33,07,273/- when appellant itself had disallowed amount of Rs 50,78,050/- in the return of income filed for the assessment year under consideration.

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited 4. Before us, the ld.DR has supported the revision order while the ld.AR has vehemently argued that the said order may be set aside as the AO made due enquiries during assessment proceedings as evident from the notices issued u/s 142(1) of the Act. In so far as the Membership fee is concerned, it is contented that the issue is directly covered by the decision of hon’ble Bombay High Court in Diners Club(supra) wherein such fee was held to be capital receipt. Reliance is also placed on hon’ble ITAT order in in its own case of AY 2009-10 in which on similar facts relating to the Membership Fees, revision order passed by the PCIT was set aside on the ground that the AO did make necessary enquiries.

5.1 In so far as the claim of enquiries of the ld.Authorised Representative is concerned, we find that the AO has issued two notices u/s 142(1) of the Income Tax Act dated 13.01.2020 and dated 02.02.2021 calling for certain details before completing the assessment order on 07.04.2021(supra).

Scanned copies of the above notices are also placed below for ready reference:-

6. On perusal of the above notices issued by the AO u/s 142(1) of the Act as also from the contents of the assessment order(supra), it is quite evident that no specific queries have been raised by the AO at all on either of the above two issues i.e. nature of One Time Maintenance fee and disallowance u/s 14A of the Act. Therefore, the contention of the ld.AR does not find any support from the above notices and assessment order. The ld.AR has not brought on record any contrary material to our knowledge to demonstrate otherwise. Even the reference to the ITAT order(supra) does not support his contention as evident from para 7, on page-6 of the said order reproduced below which clearly state that necessary enquiries were conducted in the relevant assessment order which in turn, was cancelled by the PCIT as below:

From the notice issued u/s 143(2) and the reply submitted by the assessee, we noted that it is not a case of no enquiry but a case where has made the enquiry and has taken a decision not to treat One Time Membership fees as revenue receipts.

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited 6.1 We have noticed that the AO has passed the assessment order in a rather cryptic order which does not reflect any enquiry or verification so as to examine the relevant aspects of the case which have been pointed out by the ld.PCIT We observe the ld.PCIT has drawn support from Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 01.06.2015 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to examine the provisions of section 263 and Explanation 2 of the Act thereof as below:

Section-263. Revision of orders prejudicial to revenue. (1)The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,— (i)an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; orxxxxxxxxxxxxxxxxxxxxxxxx (iii)xxxxxxxxxxxxxxxxxxxx A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited Explanation 1.—xxxxxxxxxxxxxxxxxxxxxxxxxxx Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a)the order is passed without making inquiries or verification which should have been made; (b)the order is passed allowing any relief without inquiring into the claim; (c)the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d)the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. [Explanation 3.—xxxxxxxxxxxxxxxxxxxxxxxxxx 6.2 The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142/14/2015-TPL], Dated 27-11-2015 which is reproduced hereunder: "53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it/s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "erroneous in so far as it prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015."

6.3 Clause (a) as reproduced above talks about the inquiry or investigation having not been made by the A.O., which ‘should have been made’. In the amended provisions the phrase ‘should have been done’ as provided in the newly inserted Explanation means the verification/ enquiry which ought to have been done. The Act nowhere provides the exact modalities to be followed to verify a specific claim made by the assessee. It is the prerogative of the Assessing Officer to decide the extent of verification. But by the amendment made, the Act gives a specific power to the Commissioner to revise the orders made without the inquiry to the extent he thinks fit. One should not be oblivious of the fact that the fiscal statute are to be read literally and no equity or logic has to be found in these. Therefore, the parliament in its wisdom has given power to the PCIT to decide the extent of enquiry. A discretion has been provided to the Commissioner in this context. However, it is a trite law that exercise of discretion requires the exercise of good judgement. Decision makers must use discretionary powers in good faith and for a proper, intended and authorised purpose. When

7.1 Section 263 of the Act has been elucidated and explained in Commissioner of Income Tax versus Nagesh Knitwears Private Limited, (2012) 345 ITR 135 (Delhi). In the said decision, reference was also made to Malabar Industrial Company Limited vs CIT, (2000) 243 ITR 83 (SC) and decisions of Delhi High Court A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited in Nabha Investments Private Limited vs Union of India, (2000) 246 ITR 41 (Delhi) and ITO vs DG Housing Projects Limited, (2012) 343 ITR 329 (Delhi). It has been observed in Nagesh Knitwears Private Limited (supra):

"10. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression 'prejudicial to the interest of the Revenue' is of wide import and is not confined to merely loss of tax. The term erroneous' means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power.As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word 'erroneous' includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. 7.2 The hon’ble Delhi High Court in Gee Vee Enterprises v. Additional Commission of Income-Tax, Delhi-I, (1975) 99 ITR 375, has observed as under:

"The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence maybe accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 7.3 Reference may also made to decisions of the Supreme Court in Rampyari Devi Saraogi versus CIT, (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal (Smt) versus CIT, (1973) 88 ITR 323 (SC) wherein it has been observed that where the Assessing Officer had accepted a particular contention or issue without inquiry whatsoever, the order was erroneous and prejudicial to the interest of Revenue. These two decisions were explained in the case of DG Housing Project Limited (supra) in the following words: "These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income- tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever.

(i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry." 7.4 Reliance is also placed on the recent judgements of ITAT, Delhi in NUT v CIT (Central) [2015] 60 taxmann.com 313 (Delhi) holding that , 28.2.... An inquiry which is just a farce or mere pretence of inquiry cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material.” 7.5 In the case of PVS Multiplex India Ltd V CIT in /2013 on identical facts it was held that, “wherein the Assessing Officer conducted the assessment proceeding and passed impugned assessment order accepting the return of income of the assessee, we clearly observe that the Assessing Officer has not made inquiry on the issue of interest free advances and proportionate disallowance of interest thereon, on the issue of verification on TDS and on the claim and calculation of the assessee for the purpose of deduction u/s 80IB(7A) of the Act specially on the issue of exclusion of income/receipt on sale of shop and FDR interest. In this situation, we have no hesitation to hold that the order of the AO which is apparently very precise and cryptic, was not passed after due examination and verification of certain issues and therefore, there was an error on the part of AO which leads to a correct conclusion of the CIT that the order of the AO is not only erroneous but also prejudicial to the interest of Revenue. We may further point out that the assessment order suffers from lack of necessary enquiry on certain important issues which have been raised by the CIT in the notice issued to the assessee and impugned order u/s 263 of the Act. Therefore, we reach to a conclusion that the assessment order is not sustainable and in accordance with the provisions of the Act which is not only erroneous but also prejudicial to the interest of the Revenue. Hence, we are inclined to hold that the issuance of notice u/s 263 of the Act and impugned order passed by the CIT u/s 263 of the Act is validly assumed jurisdiction of revisional powers u/s 263 of the Act which cannot be alleged as invalid assumption of jurisdiction or bad in law and we confirm the same.” 7.6 The co-ordinate bench of ITAT, Patna in to 360/PAT/2024 in the case of Gandhipati Construction Private Limited observed as below:

Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage f or such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of power s under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and the Assessing Officer to conduct such inquiries or verifications afresh.

7.7 The co-ordinate Mumbai Bench of the ITAT w.r.t Explanation 2 thorough an elaborate order in the case of Madhurima International (P.) Ltd. v. Pr.CIT [ITA No.421/ Mumbai] held that, “. In the instant case, the AO has not enquired the fair value adopted by the assessee in proper perspective and in the manner indicated under law as detailed above. Moreover , explanation 2 to Section 263 of the 1961 Act is inserted by Finance Act, 2015, which deems an order to be erroneous in so far as prejudicial to the interest of Revenue if the order is passed without making inquiries or verification which should have been made. Thus, in the instant case , we have already held that proper enquiries were not made by the AO before passing assessment order dated 23-03- 2016 u/s 143(3) of the 1961 Act , as are mandated u/s 263 of the 1961 Act. In our considered view, the ld. Pr. CIT has rightly invoked the provisions of section 263 of the Act, which we uphold/sustain. ." 7.8 The Hon’ble Delhi Court in the case of Pr. Commissioner of Income Tax, Delhi-7 vs M/S Paramount Propbuild Pvt. Ltd. in ITA 247/2023(Del-HC)on 19 March, 2024 held as below:

“Unfortunately, the assessment order nowhere reflects any element of inquiry or verification. The discussion about the loan transactions in question is altogether missing. Furthermore, the assessment record would also reflect that the AO has not taken any concrete steps to ascertain the genuineness and creditworthiness of the transactions, which merits consideration in the light of the findings that emerged from the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. It emerges that the present is a case where the AO failed not only to spell out any finding about the DDIT investigation report and assessment proceedings of M/s. Upaj Leasing & Finance Pvt. Ltd. but also to scrutinize the highlighted aspects in the said report qua the genuineness and creditworthiness of aforenoted loan transactions. Therefore, this is the minimum inquiry which atleast was expected to have been made by the AO.

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited 25. At this juncture, it is apposite to point out that clause (a) of Explanation 2 of Section 263 of the Act introduces a deeming fiction to the effect that the order passed by the AO shall be considered erroneous and prejudicial to the interests of the Revenue, if the order is passed without making inquiries or verification, which should have been made. Henceforth, since neither there is any facet of discussion about the aforenoted aspects in the assessment order nor the assessment record duly reflects that the AO has done inquiry in the light of the findings of the investigation report. We find that the present is a fit case to invoke the revisional powers under Section 263 of the Act.” 7.9 The co-ordinate bench of ITAT, in Shrenik Bothra, Rajim, Rajim vs PCIT (Central), Bhopal dated 25.09.2024 in ITA 238/RPR/2024 held as below:

“19. Our aforesaid view and observations is supported with the principle of law laid down by Hon'ble Apex Court in the case of Daniel Merchants Pvt. Ltd. &Anr. Vs Income Tax Officer &Anr. Dated 30.11.2017 have approved the judgment of Hon'ble Kolkata High Court, having held as under: "we find that the Commissioner of Income Tax had passed an order under Section 263 of the Income Tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court."

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited “1. The Ld.PCIT, however, did not accept the above said contentions of the assessee. He held that the enquiries conducted by different official (the Investigation Wing) cannot be considered as the enquiry of AO and hence, it cannot be said that there was application of mind by the AO. The Ld.PCIT also observed that the AO did not discuss anything about the claim of depreciation on the intangible assets in the impugned assessment orders. Accordingly, he held that, the impugned assessment orders are rendered erroneous and prejudicial to the interests of revenue on this count also. In support of this proposition, the Ld.PCIT took support of the decision rendered by Hon’ble Karnataka High Court in the case of Infosys Technologies Ltd., [341 ITR 293], wherein the Hon’ble Karnataka High Court has held that non-discussion of claim of deduction allowed by the AO in the assessment order would make it erroneous and prejudicial to the interest of the Revenue. Accordingly, the Ld.PCIT held that the assessment orders passed by the AO for both the years under consideration are rendered erroneous and prejudicial to the interest of the Revenue. Accordingly, he set aside the assessment orders passed for both the years and restored them to the file of the AO for the limited purpose of conducting enquiry with regard to the claim of depreciation of intangible assets and taking decision as per law. The assessee is aggrieved by the revision orders so passed by the Ld.PCIT in both the years under consideration.

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited "The phrase „prejudicial to the interests of the Revenue‟ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282." 4.1. Under the provisions of sec. 263 of the Act, the Ld Pr. CIT can revise the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as “erroneous” was explained by the Hon’ble Bombay High Court in the case of Gabriel India Ltd (203 ITR 108) as under:- "From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.... There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed" 5.1. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 5.2. We also notice that the AO did not examine the issue of allowing depreciation in both the years under consideration, even though he had taken a conscious decision to disallow the claim of depreciation in AY 2017-18 with the reasoning that the break-up A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited details and nature of intangible assets were not available. In the absence of any specific enquiry on this issue conducted in both the years under consideration, in our view, it cannot be said that there was conscious application of ind by the AO in allowing depreciation claimed on intangible assets.2024 both the years under consideration. We may refer to clause (b) of Explanation 2 to sec.263 of the Act, wherein it is stated that an order passed allowing any relief without inquiring into the claim shall be deemed to be erroneous in so far as prejudicial to the interests of revenue.

11. We find no merit in the appellant's contention. Concededly, the audit report could not have commented upon the dishonour of cheques, as the report was issued prior to the date of the cheques aggregating ₹1,45,00,000/-.. The AO had accepted the said report. The assessment order does not indicate any enquiries in this regard. The learned CIT has rightly held that the Assessment Order was passed without making the necessary inquiries and verification. Thus, in terms of clause (a) of Explanation 2 to Section 263 of the Act, the assessment order is deemed to be erroneous in so far as it is prejudicial to the interests of the revenue.

7.12 Reference is also made to a recent decision in the case of KEC International (2025) 171 Taxmann.com 197(Del)

“19. The issue which requires consideration is whether the order passed under Section 143(3) dated 28 February 1991 is erroneous and prejudicial to the interest of revenue and further whether the order under Section 263 gives a A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited conclusive finding on issue relating to Section 115J of the IT Act so as to permit the Appellant-Assessee to agitate the issue on merits.

“7. In the present case, the Commissioner, in exercise of the powers under Section 263 of the Income Tax Act and in exercise of the revisional jurisdiction, set aside the assessment order by specifically observing that the assessment order was erroneous as well as prejudicial to the interest of the Revenue. However, the High Court by the impugned judgment and order has set aside the order passed by the Commissioner by observing that the Commissioner wrongly invoked the powers under Section 263 of the Act.

7.1 Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, the Commissioner has to be satisfied of twin conditions, namely, A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act. “What can be said to be prejudicial to the interest of the Revenue” has been dealt with and considered in paragraphs 8 to 10 in the case of Malabar Industrial Co. Ltd. (supra), which are as under:- “8. The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)] , the High Court of Karnataka in CIT v. T. Narayana Pai [(1975) 98 ITR 422 (Kant)] , the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)] and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)] treated loss of tax as prejudicial to the interests of the Revenue.

A.Y. 2018-19 Apurva Natvar Parikh & Co. Pvt. Limited 8.1 Moreover, there cannot be any dispute that in the instant case, there is no enquiry at all by the AO. The ld.CIT has merely set aside the assessment order for framing it de novo. Therefore, the AO would examine the issues involved and needless to say, he would also allow the assessee opportunity of hearing following the principles of natural justice. In view of these facts, we are of the considered view that the assessee should not prejudiced by the revision order, otherwise also. Therefore, we do not have any hesitation to conclude and concur with the ld.PCIT that the assessment order is not only erroneous but also prejudicial to the interests of the revenue and was therefore, rightly set aside by him by resorting to the revisionary powers u/s 263 of the Act. Accordingly, the grounds of appeal of the assessee are dismissed and the order u/s 263 of the Act is, therefore, upheld.

9. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 01.05.2025.